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Grayling's Brexit Bulletin - 17 February 2017

17th February 2017

The Grayling view: German elections could prove to be an extra headache for May

With Brexit grabbing the headlines, it is often overlooked - not least in the UK - that there are three major elections this year in France, Germany, and the Netherlands, the results of which will have a significant bearing on the negotiations and the final agreement.

In Germany, former European Parliament President Martin Schulz is challenging Angela Merkel for the Chancellorship.

Schulz has been a big name in Brussels for a long time, having also led his Social Democrat faction in the European Parliament.

For her part, Merkel has been in power since 2005 - longevity that leaders in other countries must envy - but can she survive the 10 year itch? Her moves on immigration caused a mini-crisis last year, but she remains enduringly popular with the electorate.

So what should the UK Government make out of this?

Merkel has not been as helpful to Theresa May - a fellow daughter of a vicar - as hoped, but surely May would prefer a Merkel-led Germany after the October elections?

Schulz is used to getting his way, is something of a firebrand, and is in the opposite political camp to May. He has all the qualities to make life difficult for the UK during the Brexit negotiations, and has the expertise and the contacts in Brussels to build coalitions within the EU institutions.

For May, as far as the German elections are concerned, it is surely a case of "better the devil you know, than the devil you don't."

If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know. Please visit the Grayling Brussels website and follow us on Twitter @TheEULobby.

The highlights from the UK

Davis: Article 50 to be triggered between 11 and 31 March Brexit Minister David Davis has said the UK will trigger Article 50 between 11 and 31 March, adding that the EU Summit on 9 and 10 March would be too soon. “The 9th or the 10th (of March) are not dates that we are considering as regards our timetable. What we said was the end of March, by the end of March”, he said. Mr Davis also expressed confidence that the House of Lords would approve the "Brexit Bill" which grants Theresa May permission to trigger Article 50 by the end of March.

The Grayling viewIt doesn't really matter if Article 50 is launched on 11 March or 31 March - but the UK Government has to stick to its own enforced deadline of end March, or risk being seen as disorganised and potentially delaying Brexit. The House of Lords could still delay the triggering, but this remains unlikely.

EU workers re-considering future in UK following referendum According to a survey by the Chartered Institute of Personnel and Development (CIPD), more than a quarter of UK firms have said that their EU staff based in the UK have considered leaving the organisation after the Brexit referendum. The proportion is as high as 43% in the education sector and 49% in healthcare. "This is creating significant recruitment challenges in sectors that have historically relied on non-UK labour to fill roles and who are particularly vulnerable to the prospect of future changes to EU immigration policy," said Gerwyn Davies, the CIPD's labour market adviser.

The Grayling viewWith immigration controls a top priority for the UK Government, it is not surprising that EU workers are considering their future. As noted by the CIPD, companies will have to review their recruitment and staffing strategies and ensure that - in a scenario where many EU workers decide to leave the UK - they can adapt accordingly.

Lords threatening amendments to Brexit Bill With the Brexit Bill having been passed by MPs, the ball is now in the court of the House of Lords, who have said they will attach "conditions" to legislation allowing Theresa May to trigger Article 50. Such conditions may include a second referendum on the final Brexit deal between the UK and the EU, the guarantee of rights for EU citizens in the UK and vice versa for UK citizens in the EU, and a guarantee that the UK will remain in the Single Market. Other issues to be debated in the Upper House include putting an obligation on the Government to report back regularly to Parliament. The Lords will begin debating the bill on 20 February.

The Grayling viewBeing unelected, the House of Lords may feel it is in a stronger position to amend the Brexit Bill and risk going against the "will of the people". However, this is a double-edged sword, as their very existence as an unelected body could be in jeopardy if they are seen as damaging the democratic process. Realistically, the Lords are unlikely to make many - if any - amendments to the Brexit Bill, even if the Conservatives do not have a majority there. Public pressure will be so great that they will surely not risk making too much trouble, lest their very existence is called into question.

The highlights from Brussels

Commission says UK set for strong growthIn an about turn, the European Commission this weekadmitted that the UK economy was set for strong growth this year, despite earlier predictions that the Brexit vote would cause it damage. EU Economy & Monetary Affairs Commissioner Pierre Moscovici said that growth had been "more resilient than was anticipated in the autumn” and that the UK economy is expected to grow by 1.5% this year, an increase of a third in comparison to its November projections. The Commission also predicted that for 2016 the UK would grow faster than Germany, France, and Italy. The Commission did issue a word of caution however, citing the lag between events and investment decisions, and saying that the UK economy could be negatively affected towards the end of 2017.

The Grayling viewThis represents more positive news for the UK Government and Theresa May, but there is an obvious truth that the UK has not left the EU yet, nor has it even begun negotiations with the rest of the EU. Add to that the time lag for investment decisions to kick in, and it is too early to say with any certainty whether Brexit will have a positive or negative impact for the UK economy as a whole.

European Parliament’s Committees pull out key figures about Brexit Although the European Parliament will not be involved in the formal Brexit negotiations, it has made it clear that it wants its voice heard, notably because its final consent will be required for the final divorce settlement. To that effect, the European Parliament Policy Committees have already published 21 different reports on the impact of Brexit (available here).

Some interesting figures have come out of some of these reports. In terms of legislation, the Employment Committee noted that 20,8333 pieces of EU legislation will need to be scrutinised and settled upon before the EU and the UK can agree on a divorce agreement. The Constitutional Affairs Committee explained that the 12 mentions of the UK in the Lisbon Treaty will need to be removed. These mentions refer to the UK's exemptions in EU law.

The Foreign Affairs Committee says that the EU budget will be reduced by €10 billion without the UK’s contribution. The EU’s revenge will be that it will continue to financially monitor the UK until 2024 because EU-funded projects up to 2019 are subject to “ex-post evaluations” until 2024, according to the Industry Committee.

Citizens from both sides of the Channel will also be greatly impacted by Brexit, with 197,893 EU citizens potentially losing their rights. They are the 120,000 job-seekers and 50,893 posted workers in the UK, whilst another 27,000 are also facing uncertainty as they cross the UK border every day to work either in Gibraltar or in Northern Ireland. EU students will also be affected. On the other side, 3,800 British are currently being paid by the EU or receiving EU pensions.

The Grayling View The more one digs into Brexit, the more numerous the issues and the deeper the complexities. The sheer scale of the topics to be covered in the Brexit negotiations are slowly coming to light - how on earth will all these issues be dealt with in the two-year timeframe? It is a mammoth task.

News from the rest of Europe

Aviation wants fair treatment from BrexitLufthansa’s CEO Carsten Spohr called for more clarity regarding the Brexit negotiations, saying that if the UK Government wants a Hard Brexit, this should be the case for all sectors, especially transport. A differentiated and sectoral approach will not be manageable.

In parallel, other aviation companies’ CEOs called for continued dialogue between the EU and the UK. Indeed the CEOs of easyJet and International Airlines Group (including British Airways) are hoping for the continued liberalisation of aviation after Brexit.

The Grayling ViewTransport - and especially aviation - are particularly exposed when it comes to Brexit, given its international scope. Moreover, the UK no longer participating in aviation discussions in the EU could have a negative impact on the liberalisation of the sector. The impact of this will go beyond aviation and might impact other sectors, notably rail.

Kern: UK must be in a worst position after BrexitAustrian Chancellor Christian Kern has said that the UK should find itself in a worse position post-Brexit than when it was as an EU Member State. "A member of the club must have better conditions than someone who is not in the club – our British friends must know that nothing else can come out of these negotiations," he said.

The Grayling viewAustria is hardly a big country in the EU, yet Mr Kern's comments reflect the political mood music not just in Vienna, but also in other EU capitals. It could be seen as posturing, and once negotiations begin we can expect a more conciliatory mood from both sides, but make no mistake - EU countries are in no mood to grant favours to the UK, and for a country like Austria, which has its own sizable Eurosceptic minority, the UK cannot be seen to benefit from Brexit.

News from the US

Apple has faith in UKThe UK got a shot in the arm this week from Apple's CEO Tim Cook. “We are very optimistic about the UK’s future and we are all in...We’re a big believer in the UK. The UK will be just fine,” he said after a meeting with Theresa May and the Mayor of London Sadiq Khan. He nonetheless added that there would be "bumps in the road" in the near future. Apple currently employs around 1400 staff at its London offices.

The Grayling viewThis provides a much needed boost for the UK Government as it stands on the cusp of the Brexit negotiations and represents a sign of confidence in the country. It is a reminder that there are other reasons for companies to base themselves in certain countries - the regulatory environment, the business environment, taxation, language (i.e. English speaking).

Froman says there won't be a UK-US trade deal anytime soonFormer US trade Representative Michael Froman has said that the UK will not sign a trade deal with the US anytime soon and also confirmed that it won't be able to begin "meaningful" negotiations until a UK-EU agreement has been finalised. This contradicts comments from Donald Trump's team who said that a deal could be done "in a week." Froman added that the "lack of certainty" over the future UK-EU relationship will also "slow progress on any trade agreement with the US."

The Grayling viewMr Froman's views merely reflect reality - namely that it is too early in the Brexit progress - both legally and practically - for the UK and US to begin formally discussing a trade deal, and much will depend on the outcome of the Brexit negotiations.

Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.

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